Secured Loans in South Africa

What is a secured loan?

A secured loan is borrowing backed by an asset that acts as collateral. Depending on the lender and type of finance, the security may be a property, vehicle or another asset of sufficient value.

The collateral reduces the lender's risk because the lender may have a legal right to recover money from the secured asset if the borrower defaults. This can make secured finance suitable for larger amounts or for borrowers who have valuable assets but do not qualify for the unsecured loan they want.

However, providing collateral does not make a loan risk-free for the borrower. If you cannot keep up with the agreement, the asset used as security may ultimately be at risk.

How secured loans work in South Africa

The basic process is straightforward:

1. Choose how much you want to borrow.
2. Tell the lender which asset you want to use as security.
3. The lender assesses your application and affordability.
4. The lender may verify ownership and determine the value of the asset.
5. You receive an offer showing the interest rate, fees, term and repayments.
6. The required security is registered or otherwise put in place.
7. Once the agreement is completed, the loan is paid out.

Having collateral does not automatically guarantee approval. Consumer lenders still need to consider whether granting the credit would be responsible and affordable under South African credit rules.

What can be used as collateral for a secured loan?

The assets accepted vary substantially between lenders.

Property

Residential or other qualifying property can be used to secure some forms of finance. The amount available normally depends in part on the property's value, existing finance and available equity.

Property-backed borrowing can provide access to larger amounts, but the consequences of default can also be serious because valuable real estate is being placed at risk.

Cars and other vehicles

Some South African lenders offer loans against cars or other vehicles. The vehicle normally needs to meet the lender's ownership, age, condition and valuation requirements.

Depending on the product, you may be able to continue using the vehicle while the loan is outstanding, but this should never be assumed. Check the particular lender's agreement.

Other valuable assets

Specialist asset-backed lenders may consider assets such as jewellery, diamonds, watches, artwork, motorcycles, trucks, boats or other high-value property.

Not every secured lender accepts these assets, so compare the eligibility rules before applying.

Secured personal loans vs unsecured personal loans

The main difference is collateral.

A secured personal loan is backed by an asset. An unsecured personal loan is approved without the borrower pledging a specific asset as security.

Because collateral can reduce the lender's potential loss, a secured loan may sometimes offer:

• a larger available loan amount;
• a lower interest rate;
• a longer repayment period;
• more flexible eligibility.

These benefits are not guaranteed. The rate and amount offered still depend on the lender, your financial position, the asset and the type of credit agreement.

An unsecured loan avoids putting a specific asset up as collateral, but borrowers with weaker credit profiles may receive smaller limits or more expensive terms.

Are secured loans cheaper?

They can be, but a secured loan is not automatically the cheapest option.

Collateral lowers one part of the lender's risk, which can result in more competitive pricing. You should still compare the complete cost of each offer rather than choosing a loan only because its advertised interest rate appears low.

Check:

• interest rate;
• initiation fee;
• monthly or service fees;
• insurance costs where applicable;
• valuation or security-related costs;
• monthly repayment;
• repayment term;
• total amount repayable.

South African consumer credit is regulated by the National Credit Act, which places limits and requirements on interest and charges depending on the type of credit agreement. The applicable ceiling is not one universal percentage for every product.

How much can I borrow with a secured loan?

There is no single maximum for all secured loans in South Africa.

The amount can depend on:

• the market value of your collateral;
• how much equity you have in the asset;
• the lender's maximum loan-to-value policy;
• your income and existing financial commitments;
• the purpose of the loan;
• your credit profile;
• the particular type of secured finance.

A valuable asset therefore does not necessarily mean that a lender will advance its full market value.

Secured loans for bad credit

Using collateral may improve your chances of finding finance when your credit profile is weaker because the lender has additional security.

However, secured loans for bad credit are not guaranteed loans. A lender may still assess your income, expenses, existing debts and credit information before making a decision.

Be especially cautious of companies advertising guaranteed approval in exchange for an upfront payment. Check who you are dealing with and read the credit agreement before providing money or handing over an asset.

Do secured loans require a credit check?

Collateral does not normally mean that affordability and creditworthiness can simply be ignored.

For consumer credit covered by South Africa's National Credit Act, responsible lending rules include measures intended to prevent reckless credit. A legitimate lender may therefore ask for information about your income, expenses, current debts and credit history.

Specialist asset-backed products can use different underwriting models, but you should not assume that a secured loan is automatically a no credit check loan.

Requirements for a secured loan

Requirements vary between providers, but applicants may commonly need:

• a valid South African ID or other accepted identification;
• proof of income or evidence that repayments are affordable;
• recent bank statements;
• proof of address;
• information about existing credit commitments;
• proof that you own the proposed collateral;
• documents needed to value and verify the asset.

Property-backed and vehicle-backed loans may require additional documentation.

How to apply for a secured loan online

Start by comparing the secured loan options listed on this page rather than submitting applications to multiple lenders without checking the costs.

Once you have selected an option:

1. Open the lender's application.
2. Enter your personal and contact information.
3. Provide income and expenditure details where required.
4. Give details of the property, vehicle or other asset offered as security.
5. Upload any requested supporting documents.
6. Allow the lender to assess the application and collateral.
7. Review the quotation and full credit agreement.
8. Accept only if you understand the total cost and the consequences of default.

An online application may be quick, but secured finance can take longer to complete than a simple unsecured loan because the lender may need to value or register security over the asset.

Advantages of secured loans

A secured loan may be useful when you have an asset of sufficient value and need access to finance on terms that are difficult to obtain without collateral.

Potential advantages include:

• access to larger loan amounts;
• potentially lower rates than comparable unsecured credit;
• longer repayment periods for some products;
• collateral may strengthen an application;
• different asset-backed options are available.

Risks and disadvantages of secured loans

The biggest disadvantage is straightforward: you are putting an asset at risk.

Other drawbacks can include:

• repossession or enforcement against collateral after serious default;
• valuation and additional paperwork;
• a potentially longer approval process;
• extra costs linked to the security;
• paying more overall when choosing a long repayment term.

A lower monthly instalment does not necessarily mean a cheaper loan. Extending the term can increase the total amount of interest paid.

How to compare secured loans

Do not compare lenders using the maximum loan amount alone.

A better comparison considers:

Total cost

Look at the interest and all applicable fees, not only the monthly repayment.

Loan term

A longer term reduces individual instalments but can increase the total borrowing cost.

Collateral requirements

Check exactly what security the lender accepts and what happens to the asset during the agreement.

Loan-to-value

Find out what percentage of the asset's value the lender is prepared to advance.

Early settlement

Check the agreement for the rules and any applicable costs if you repay ahead of schedule.

Default terms

Understand what happens when a payment is missed and at what point enforcement against the collateral may occur.

Lender legitimacy

For consumer credit, check that you are dealing with a legitimate provider operating within South Africa's applicable credit regulations.

Is a secured loan a good idea?

A secured loan may make sense when the financing has a clear purpose, the repayments comfortably fit your budget and the cost is competitive with alternatives.

It may be a poor choice if you need to pledge an essential asset just to cover routine living expenses or repayments already stretch your monthly budget.

Before using a home, car or other valuable asset as security, ask yourself one important question: could I cope financially if I lost this asset?

If the answer is no, compare unsecured borrowing, a smaller loan or other alternatives before committing.